Economic environment and taxes

The mission of employers is to contribute to Estonia’s economic growth and to raise people’s living standards. We want competitiveness growth to be the most important criterion for assessing all policy decisions that affect the economy. The focus of the Economic and Tax Working Group is on economic development, the business environment and taxes. We have set up separate working groups for issues that are important for economic development, such as labour, education, innovation and climate.

Our key positions are set out in the Employers’ Manifesto:

• Our common goal is sustainable growth in the well-being of the Estonian people, the only source of which is economic growth.
• Estonia’s economic policy is liberal and the ultimate value is individual freedom. The state’s task is to safeguard this freedom by interfering as little as possible in business.
• Estonia is a thin country – small but active. It is based on the understanding that with freedom comes responsibility for one’s life and choices. Estonia’s tax burden is less than 35%.
• Estonia’s economic, tax and legal environment is simple, clear, predictable and reliable.
• Estonia is an open country. We are open to new ideas, new people and new technology.
• Estonia is the brightest country in Europe. This is based on effective and trusting cooperation. Our business is fast, substantive and bureaucracy-free.

Want to get involved and contribute to the Working Party on the Economic Environment and Taxation?
Let our working group coordinator know your request!

Raul contributes data analysis to position papers and policy messages, and chairs the Economic Development and Tax, Environment and Energy and Innovation working groups. Prior to joining Employers, Raul worked as an analyst at the Tax and Customs Board. Raul holds a Master’s degree in Social Sciences from Tallinn University of Technology. In his spare time, Raul enjoys spending time with his family, health sports and fishing.

Raul Aron

Analyst-Advisor

+372 564 75111

raul.aron@employers.ee

Proposals to the country

• Agree on the longer-term content, objectives and timetable for state reform.
• Reduce the number of services provided by the public sector, and through this the number of public sector employees, by at least 3,000 per year over 10 years; measure and publish the outcome annually.
• The overhaul of the way the state works needs to be pursued in depth: the volume of legislation and rules needs to be reduced by up to 25%, duplication needs to be eliminated, and the necessity and processes of public services need to be critically reviewed.
• Establish international rail, road and tunnel connections. We also need to invest in improving international air links, avoiding the mistakes of the past.
• Make increasing the volume of investment by high value-added enterprises a priority for both governments and municipalities. Give governments and municipalities greater powers to make decisions that attract investment.
• Continue privatisation and transfer of public services to the private sector. State involvement in entrepreneurship is only justified if it invests in business-friendly infrastructure, or if the private sector cannot go it alone.
• Value more job-creating investors, give them a clear message that they are welcome. Harmonise messages and targets across ministries and agencies.
• The rapid deployment of data analytics and artificial intelligence is inevitable. It can free up manpower and improve the quality of public services. The state itself should not be the biggest IT company in Estonia, but a smart customer.
• production inputs.

• Contribute to the creation and development of research communities for the skilful use of resources, as Estonia’s assets need to be explored and used innovatively and sustainably.
• A cross-party agreement that the state will increase R&D funding to 1% of GDP over three years and maintain this level thereafter. The additional money should be directed only to those areas that primarily support the development of the Estonian economy and society.
• We recommend creating a financial incentive for local authorities to develop the business environment and attract foreign investment.
• The constant tax changes in recent years have created confusion and mistrust of the state among taxpayers everywhere. This has destroyed morale and adversely affected the country’s overall tax revenue. Tax experimentation must stop. The suggestion to the state is to make concrete corrections to the mistakes and then analyse whether or not the Estonian tax system needs major and comprehensive changes. As corrective measures, we suggest:Restoring a common minimum taxable amount; and
• lowering excise duty rates to a level that would encourage people to buy excise goods from Estonia again, rather than from neighbouring countries.
• Finding solutions to reduce other taxes and charges on energy carriers, as they are important.
• For employers, social tax is the biggest obstacle to job creation created by the state. What is special about the Estonian system is that all social tax is paid by the employer. As in other parts of the world, there is scope for some changes in the social tax system in Estonia to bring about favourable structural changes.Reducing the minimum social tax rate to make it easier for part-time workers to find work;
• introduce a social tax cap with the aim of making Estonia more attractive for top talent;
• sharing the social tax burden between the employee and the employer in such a way that the employee’s net pay is not reduced;
• introducing a social tax credit on the wages of apprentices and trainees to encourage cooperation between employers and educational institutions.

• To increase employers “willingness and ability to invest in workers” well-being, exempt from labour taxes the following employer costs:
  • study leave pay (to encourage lifelong learning);
  • childcare costs (facilitates work for parents with young children);
  • health costs (helps reduce sickness and encourages workers to return to work faster);
  • the so-called “employer pension” (which helps to attract private funding on a voluntary basis into a pension system that is currently running a large deficit).
• Analyse the impact of all tax changes on the budget and on people’s and businesses’ behaviour, and make public all impact assessments of changes.
• Set up a strategy for the decline in EU support and prepare for a possible economic downturn, including by increasing growth-hedging reserves and increasing financial discipline for worse times; and increase public investment in infrastructure when the economy deteriorates.
• Draw up a national budget every ten years from a zero base, i.e. without taking into account past spending. We recommend that the first such budget is prepared within the next four years, but no later than the recession.

Proposal to the National Assembly

Do not proceed without a drafting proposal, a thorough impact assessment and agreement of partners.

Proposal for an employer

• Digitise and automate business processes across value chains wherever you can.
• Increase your efforts to create added value and environmental savings in an industry based on domestic resources.
• Target and invest much more in the development of your businesses.